Early in january 2010 tellco acquired a new machine and

Reference no: EM13598361

Early in January, 2010, Tellco acquired a new machine and incurred $100,000 of interest, installation and overhead costs that should have been capitalized but were expensed. The company earned net operating income of $1,000,000 on average total assets of $8,000,000 for 2010. Assume that the total cost of the new machine will be depreciated over 10 years using the straight-line method.

1.) Calculate the ROI for Tellco for 2010.
2.) Calculate the ROI for Tellco for 2010, assuming the 100,000 had been capitalized and depreciated over 10 years using the straight-line method.
3.) Given answers to A and B, why would a company want to account for this expenditure as a expense?
4.) Assuming that the $100,000 is capitalized, what will be the effect on the ROI for 2011 and subsequent years, compared to expensing the interest, installation and overhead costs in 2011. Explain.

Reference no: EM13598361

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